Venture capitalists hate gaming but love play-to-earn token prices

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Last year saw the rise of the concept of “play-to-earn” in gaming. If you’re unfamiliar with the concept, it more or less means that, through playing a game relentlessly, you can earn a passive income, usually by collecting in-game tokens or items and then reselling them on an open market or exchange.

Unfortunately, what’s become evident is that the model is broken: no one is playing these games, because these games aren’t fun.

Decentraland – like Second Life, but on the blockchain

If that pitch sounds like it’s straight out of 2017, that’s because Decentraland was launched almost exactly five years ago. But, of course, they’re still building, right? Wrong.

Usership has dwindled to near nothing and the in-game marketplace is dead. Yet the currency associated with the game, MANA, has a market cap of over a billion dollars.

Besides Decentraland’s $26 million ICO back in 2017, Decentraland is also funded by nine venture capital firms, including Digital Currency Group. The suggestion here is that these investors care more about the price of MANA than creating a fun game for users – and the data bears this out.

While Decentraland at its peak has failed to attract more than a few thousand users at a time, trading volume for MANA is in the tens of millions of dollars every day. This currency is being traded on exchanges, not in-game, and isn’t used for much of anything besides speculation.

Second Life, the “web2” rival of Decentraland, despite its age (nearly two decades old) and issues (from money laundering to in-game harassment), continues to attract tens of thousands of users monthly and continues to play host to a relatively vibrant marketplace. Linden Lab, the creator and publisher of Second Life has raised less than Decentraland, consistently has better numbers, and has retained players for literally decades.

Axie Infinity for the win

Another example of a play-to-earn game that got attention last year was Axie Infinity, a NeoPets meets Pokémon type game that allows players to spend in-game currency (Smooth Love Potion) to buy upgrades, assets, and land.

Axie Infinity was even cited by The New York Times in its Latecomer’s Guide to Cryptocurrency as a “functional web3 application.” The article came out four days before Ronin Network – the sidechain protocol that the in-game currency relies on – was compromised by North Korean hackers for hundreds of millions of dollars.

But long before the press and hacks, Sky Mavis, the company that created Axie, was being funded by VCs to the tune of over $300 million, with investors including Binance, a16z, and Mark Cuban – not exactly companies or individuals at the cutting edge of what fun gaming looks like.

Besides relying on Filipinos suffering through indentured servitude and Ponzi-adjacent game mechanics, players often complained of monotonous fighting, lack of meaningful development, and tedious, grind-reliant play.

Both the highest-priced piece of land and highest-priced Axie were recorded a year ago, worth $2.33 million and $819,000, respectively. In the past month, the highest-valued land sold for $18,000 and the highest-valued Axie sold for ~$24,000.

Meanwhile, the tokens associated with the game have suffered catastrophic collapses, with AXS 94% off its all-time high and SLP down 99.99% from its own peak. Its volume and transactions have similarly fallen off a cliff.

Stepn to a Ponzi

The last play-to-earn game we’ll examine that briefly made a splash is STEPN. Have you ever wanted to get paid for every single thing you do? Then STEPN might sound awesome. In this “game” the goal is to buy more and more shoes with attributes. You walk, jog, or run with the app tracking your every movement through five-bar connected GPS – or no points for you!

Once you’ve accumulated points you can “repair” pairs of shoes and buy mystery boxes that – you guessed it – have more shoes. If this sounds boring, fear not, you’re not alone: volume has plummeted from a 24-hour high of nearly 2,000 in April of this year to roughly ~10 now. The floor price has also cratered, from an all-time high of ~$1,400 to $34 as of writing.

STEPN is based out of Australia and has raised the least VC money of the games mentioned, accepting $5 million from Alameda Research, Solana Ventures, and others.

The numbers don’t add up

For all the capital injected into the web3 gaming industry and play-to-earn, there remains little to show for it, and the problem, which sounds easy to fix, is that the games aren’t fun.

A quick glance at Steam’s most played games shows two very consistent themes: games with incredibly long replay value and decades of lore like Counter-Strike, Grand Theft Auto, and Call of Duty, and the now very common, free-to-play, battle royale games like Apex Legends and Team Fortress. This isn’t due to sheer luck.

While all of these games are quite different, from cost of production to pace of gameplay, they remain the same in their monetization aims: they sell people skins for gear, clothes for their character, or maybe a vehicle with no special attributes other than being limited in number. The goal isn’t to force people to buy and sell in-game items but to make them want to buy and sell in-game items. The purchasing is optional, the playing is necessary.

This is the distinction that web3 and play-to-earn fail to make and likely can’t change. Similar to how games that relied heavily on loot boxes or lottery-like mechanics have seen users disappear and complaints of rigged multiplayer experiences flood the internet, play-to-earn simply can’t shake that its model ruins gaming by taking out all the nuance and turning it into… well, a job.

However, gamers don’t need journalists or critics to explain why a gaming business model works or doesn’t, why a game of collectibles might actually be a Ponzi scheme: they play the games, and if the games suck, they stop playing. Which, thankfully, is what’s happening in the play-to-earn landscape.

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